Investors Demand CEO Face Time

Bosses Must Juggle More Meetings With Investors, Leaving Less Time to Run Their Companies

By

Leslie Kwoh

Updated Nov. 29, 2012 4:53 p.m. ET

What's the value of a meeting with a chief executive?

For investors pondering large stakes in a company, a few minutes of a CEO's time can be worth millions of dollars, giving them deeper insight into a firm's strategy and prospects.

Big mutual funds have long insisted on meeting a company's top boss before taking a stake in the firm, but the uncertain economy has led more investors to demand face time with CEOs—an obligation, bosses say, that is leaving them with less time to run their companies.

Phil Fernandez,
CEO of Marketo Inc., a marketing automation software firm based in Silicon Valley that is gearing up for an initial public offering, is getting a taste of how demanding investors can be. He estimates he now spends roughly 20% of his time meeting with investors, either in "roadshows"—where he might meet with 50 investors in rapid succession—or in private half-hour sessions with large firms like Fidelity and
T. Rowe Price
.

In better economic times, public-company CEOs met with most investors at big conferences, where the quick, numerous conversations often resembled speed-dating. For longer sit-downs, shareholders were generally content to commune with a company's investor-relations team.

Globally, the number of private investor meetings at companies has fallen slightly over the past year, as have IR head counts and budgets, according to a recent survey of more than 1,400 investor-relations officers by IR Magazine. However, senior managers are attending a bigger share of meetings than before.

C-level executives in North America topped the list, attending 70% of private investor meetings over the past year, up from 64% a year earlier. On average, CEOs and finance chiefs devoted 14 days and 17 days, respectively, to these meetings.

Most CEOs today cannot afford to decline a meeting request.

Many investment funds now have policies—both explicit and unspoken—that they won't take a stake in a company before meeting with the CEO, says
Chris Hodges,
founder of Alpha IR Group, a Chicago firm that advises companies on investor relations.

"If they don't play Wall Street's game, it really does have an ultimate impact on their valuation," says Mr. Hodges, who instructs his clients, mostly small- to mid-cap public companies, to devote at least one or two days a month to investor meetings.

Accommodating investors, however, doesn't guarantee their loyalty.

Companies used to meet mainly with mutual funds and other long-term investors, but the rise of hedge funds has forced executives to also talk with investors who operate on a shorter time frame—and in some cases, may even short the company's stock, Mr. Hodges says.

The middlemen in the process, investment bankers, push for these meetings partly to show their investor clients—like hedge funds—that they can broker access to company management.

Analysts at SunTrust Robinson Humphrey Inc., an Atlanta-based investment bank, are increasingly evaluated on how many confabs they arrange between management and investors, says
Andrew Jeffrey,
a SunTrust managing director. A good number for each analyst, he says, is about 25 days of meetings a year.

In theory, investors should gain little from a face-to-face encounter with an executive. Securities law requires companies to share material information with all investors at the same time, via public filings.

ENLARGE

Gamestop CEO Paul Raines says he spends 25% to 30% of his time on meetings with investors.
Bloomberg News

But in a yet-to-be-published study that is in peer review, Harvard Business School assistant professor
Eugene Soltes
suggests meeting with a CEO may give some investors an edge. Mr. Soltes, who co-wrote the study, examined the meeting records from 2004 to 2010 of a mid-cap firm traded on the New York Stock Exchange.

While most investors met with firm executives only once during the six-year period, several hedge fund managers and large stakeholders scored meetings several times a year.

Those who had more frequent meetings tended to make better investments, Mr. Soltes found, increasing their positions ahead of rises in the share price and paring back as shares fell. (The study controlled for characteristics that might give some investors a perceived edge in securing time on a CEO's calendar, including firm size, type, asset size, stock turnover and past performance.)

Mr. Soltes has no evidence that anything untoward happened in these meetings, but wonders whether they undermine fairness in the market. Companies might take precautions to follow the letter of the law, he says, but "that doesn't mean the playing field is level by any means."

Brian Hogan,
president of the equity and high-yield business at Fidelity Investments, the largest active mutual fund company, says meeting a CEO can yield "nuances" about a company that don't come across in earnings transcripts, and help him "put the entire mosaic together."

Willy Walker,
CEO of
Walker & Dunlop
Inc.,
a Maryland-based real-estate financing firm, says investors probe him for confidential information about his company or competitors "all the time."

"They'll say, 'I'm sure you can't say, but I want to put this out there,'" says Mr. Walker, adding that he always brings an investor-relations representative with him to meetings and has a practiced poker face, since even small gestures or expressions could tip off a buyer. "They're hunting."

David Melcher,
who became CEO of aerospace and defense company
Exelis
Inc.
last year, says he has had to commit more time to investors than his predecessor did, spending roughly three to four days each month on such meetings.

He recently returned from a two-day whirlwind trip to Los Angeles, San Francisco and Denver, where he met with eight investors—only one of them a current shareholder. In these sessions, he says he is "selling the management team," and demonstrating he's accountable.

It's unclear whether investor meetings affect firm performance. A 2011 study of 94 Italian public and private-company CEOs found that firms whose bosses spent more time with "insiders" instead of "outsiders"—such as investors, suppliers and consultants—recorded higher profits and productivity, measured in sales per employee, according to Harvard Business School assistant professor
Raffaella Sadun,
one of the study's authors.

Marketo's Mr. Fernandez says analysts' and investors' requests for meetings have grown so constant that he walked into his finance chief's office recently and declared he was setting some limits. "I need time to run the company," he said he told the finance chief.

Still, saying no to investors is easier said than done, he admits. "It's all about money, and if you don't have money, you don't have a company."

Corrections & Amplifications SunTrust Robinson Humphrey Inc. has offices in San Francisco but is based in Atlanta. An earlier version of this article incorrectly stated that the firm was based in San Francisco.

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